Hi E_K_S,
Looks like natural gas is at the 5 year average, Capex cuts are beginning to show a possible boost in price.
ECONOMICS & MARKETSMorgan Stanley: $5 Henry Hub gas possibleRecord production declines combined with rebounding demand could create the tightest gas market of the past decade, with winter storage draws potentially eclipsing those of the 2013-14 polar vortex, according to Morgan Stanley.
OGJ editors
Oct 5th, 2020
Morgan Stanley.
Record production declines combined with rebounding demand could create the tightest gas market of the past decade, with winter storage draws potentially eclipsing those of the 2013-14 polar vortex, according to Morgan Stanley. The investment bank and financial services company increased its 2021 Henry Hub forecast to $3.25/MMbtu from $3.05/MMbtu and sees upside to $5/MMbtu with cold weather.
“2021 Henry Hub prices have rallied 10% in the third quarter on tighter inventories, though we see further upside from here. The collapse in oil prices removed a key overhang for the US natural gas market: the abundance of ‘free’ associated supply from oil wells. Now, record production declines from sharp reductions in E&P spending combined with rebounding demand, led by a recovery in LNG exports, is set to create the tightest gas market of the past decade, with winter storage draws potentially eclipsing those of the 2013-14 polar vortex—a $4.35/MMbtu gas year—and with a growing shortfall through the summer months,” Morgan Stanley said.
To address the impending supply-demand imbalance, Morgan Stanley sees the need for materially higher 2021 prices to incentivize much needed investment in additional supply and gas-to-coal switching. “We are updating our gas balance and increasing our Henry Hub forecast for 2021 from $3.05/MMbtu to $3.25/MMbtu, implying 13% upside from the current strip of $2.87/MMbtu. Our long-term $2.75 forecast is unchanged.”
US gas production is set to post a record 6 bcfd decline this year. Growth in "free" gas from oil production (associated gas) has been a key overhang for Henry Hub prices over the past few years. However, in response to low oil prices, exploration and production companies have now slashed 2020 capital spending by around 50% below 2019 budgets. Morgan Stanley expects associated gas production to fall by 3-4 bcfd exit to exit 2020.
“With WTI prices currently below the $40/bbl we estimate is needed to hold US volumes flat next year, these declines could continue into 2021. Declines are not isolated to the oil basins: in the Haynesville, rig counts have fallen from 50 to 35 year-to-date, with the Marcellus posting a with a similar 30% decline. Weak spot prices this summer, balance sheet stress and minimal access to external capital has left gas producers with production declines of their own, and limited ability to proactively increase capex in response to the upcoming market tightness.”
Despite declining supply, demand looks set for another year of strong gains. Global gas oversupply led to substantial cancellations of US LNG exports over the past summer. Peaking at 45 cargo cancellations in July, LNG feedgas demand fell to below 3 bcfd, well below capacity of 9.5 bcfd. Heading into the winter, Morgan Stanley anticipates negligible cargo cancellations as the global LNG market shifts back into balance. After averaging 6 bcfd in September, Morgan Stanley expects LNG feedgas to stabilize around 9-10 bcfd during the fourth quarter. In total, winter 2020-21 demand growth is forecast to be 5-6 bcfd year-over-year (assuming normal weather).
The combination of falling supply and rebounding demand leads to tight inventories. After ending October 2020 at 3.9 tcf, roughly in line with the 5-year normal, Morgan Stanley expects the combination of constrained supply and increasing demand to lead to one of the largest winter draws over the past decade. Assuming normal 10-year weather, Morgan Stanley expects tight end-March inventories of 1.2 tcf (35% below the 5-year normal of 1.8 tcf), with a mounting deficit thereafter. Colder than normal weather could lead to the lowest US gas inventory levels on record, and a material price rally to $5/MMbtu, or higher, and average in the mid-$4 range for full-year 2021.
 Morgan Stanley.
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They're hoping for a cold winter - which will also boost fuel oil. also
I flew in a plane for the first time in years last Friday. It was a full plane and both planes I flew in were refreshingly clean.
Their first hand out was an alcohol swab that cleaned all the surfaces, issued as one enters the plane.
In all it was a very improved service.
Air flight will slowly build into the future.
Patience will reward those who buy this out of favor and necessary sector.
Bob |
